Federal Student Loan Origination Fees Under Fire by NASFAA

"A new policy brief from the National Association of Student Financial Aid Administrators’ (NASFAA) is urging the federal government to get rid of what they called the 'hidden student loan tax.' This 'tax' is known as the origination fee," Andrew Rombach writes for LendEDU.

"Whenever a borrower takes out a new federal loan, the Department of Education withholds a percentage of the loan amount, taken as a fee for originating the loan, and then distributes the rest of the funds to the borrower.

While a student loan borrower does not receive 100 percent of his or her student loan disbursement, the borrower is still on the hook for 100 percent of the loan plus interest. Currently, there is a 1.06 percent fee for undergraduates and a 4.2 percent fee for graduate students.

In 2016, the federal government earned $1.6 billion in origination fees according to the policy brief, and over the last five years, the government has made $8.1 billion. The NASFAA estimated that the typical undergraduate and graduate student pay up to $235 and $1,145, respectively.

Back in the 1980s, these origination fees were implemented to offset the cost of student loan origination when private banks were issuing loans.

However, in 2010, the Department of Education took over student loans and started issuing student loans. While private banks got pushed out of the business, the origination fees stuck around which NASFAA argues are no longer necessary."

NASFAA's "Headlines" section highlights media coverage of financial aid to help members stay up to date with the latest news. Inclusion in Today's News does not imply endorsement of the material or guarantee the accuracy of information presented.